Chain Stores, Consumer Mobility, and Market Structure
Homogeneous products are often sold by chains and locals but the chains charge higher prices. We explain this pricing pattern as well as the empirical fact that chains became increasingly dominant at the same time as consumer mobility increased: Consumers bear setup costs whenever they visit a firm for the first time. A chain operating stores in all locations insures consumers against the need to bear setup costs repeatedly when moving to new locations. In equilibrium, the chain charges higher prices and attracts more consumers than locals. As consumer mobility increases, the chain's market share and profit increases.
Volume (Year): 167 (2011)
Issue (Month): 2 (June)
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